--Honghua aims to form joint venture with foreign company for shale-gas drilling, fracking

--Honghua in talks with foreign oil major to offer site-support services for shale gas

--Company also hopes to offer site-support system for shale gas in China

BEIJING--Honghua Group Ltd. (0196.HK), China's largest exporter of drilling rigs, is in talks with a leading overseas oil field-services company to establish a joint venture to offer shale-gas drilling and hydraulic-fracturing services to global customers, Honghua Group's Chairman and President Zhang Mi said Wednesday.

Honghua is also in talks with a major foreign oil company interested in using Honghua's site-support system to explore and develop shale gas, Mr. Zhang said in an interview.

The company's goal is to become China's largest drilling and hydraulic-fracturing services provider, Mr. Zhang said. Hydraulic fracturing, also known as fracking, is a method of using water to free up natural gas locked in shale deposits.

"We are looking to establish a joint venture with one of the world's leading oil-field services companies that has experience in the U.S. shale market," he said. "We want to team up to be the best shale-gas exploration service provider in China," he said.

"We have the equipment and workforce for drilling, but we lack fracturing expertise," Mr. Zhang added.

Honghua's plan is underpinned by a trend of foreign companies with shale-gas exploration expertise eager to team up with Chinese companies in the country, which hosts possibly the world's largest shale reserves, with an ambitious target to produce 6.5 billion cubic meters of shale gas per year by 2015, up from zero currently.

Earlier this week, U.S. oil services giant Schlumberger Ltd. (SLB) purchased a 20.1% stake in Hong Kong-listed Anton Oilfield Services as it seeks to enter the Chinese market.

Honghua's site-support system for assisting in shale-gas exploration and development uses less equipment and requires a smaller footprint compared with traditional methods, he said, adding that it reduces overall costs, energy consumption and carbon emissions.

The company has set a year-end oil-field service target of employing between 500 and 700 people capable of working on 11 drilling platforms, up from 200 people capable of working on three platforms in 2011, he said.

Mr. Zhang said Honghua will launch a demonstration of its site-support system for shale-gas exploration and development by year end and plans to commercialize the system within two years.

He also said the company hopes to offer the system in China, which has been trying to open up its shale-gas sector to private investment.

"We are actively looking to join as minority investors in a shale-gas exploration project when a second tender is held," Mr. Zhang said.

China offered four blocks in its first shale-gas tender in June 2011, but only state-owned companies were allowed to bid. It will launch a second tender later this year and extend bidding to domestic private companies as well.

Headquartered in the southwestern Chinese city of Chengdu, Honghua is one of the largest onland drilling rig manufacturers in the world.

Last year, Honghua sold more than 90% of its rigs to customers outside China, including 30% to the Americas, 30% to the former Soviet Union and 20% to the Middle East, Mr. Zhang said.

Write to Sarah Chen at Sarah.Chen@dowjones.com

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